Watch Out McDonald's, Here Comes Taco Bell's Waffle Taco Breakfast

Over the last few months, struggles at McDonald’s have been pretty well documented and for those that missed out you can review recent same store sales trends. The most recent of such figures released just a few weeks ago showed sales at the company’s established US stores fell for the third straight month. The 3.3% drop in the month of January alone at US McDonald’s locations missed already weak expectations calling for a 1.6% drop for the month.

There are several cues to what’s ailing McDonald’s, including depressed disposable income and consumer spending, rising beef prices that will pressure margins, and a lack of menu innovation at a time when its competitors are bringing new items to market. To date, the main attack on McDonald’s menu has come from Burger King Worldwide, Wendy’s Company and even Arby's Restaurant Group is having big success with its new Smokehouse Brisket sandwich. At the same time, other companies including Starbucks and even Dunkin’ Brands are updating and expanding their menu to capture consumer spending dollar share for fast-food and fast-casual dining during the lunch hour.

The Taco Bell waffle taco. (AP Photo/Taco Bell)

The assault on McDonald’s menu is about to step up another notch as Taco Bell, a sister company to Pizza Hut and KFC under the Yum! Brands umbrella, is finally getting into the breakfast game on March 27. Taco Bell’s breakfast menu will include a Waffle Taco -- a breakfast sandwich wrapped inside a waffle with a side of syrup -- and a bacon, eggs and hash brown version of its tortilla-based Crunchwrap as well as breakfast burritos, coffee and orange juice. Long-time investors remember the positive revenue and earrings implications when McDonald’s first expanded into breakfast, and it looks like Yum! Brands could repeat that success.

It’s not just Taco Bell that McDonald’s has to watch out for when it comes to its breakfast menu. Also stepping up its breakfast menu is Burger King, which has been testing a Chicken and Waffle Sandwich that could be added to its existing breakfast menu. Remember too, that Starbucks is also overhauling its breakfast menu offering as it rolls out products from its La Boulange Bakery acquisition. On March 4, Starbucks also plans to roll out new and revamped breakfast sandwiches, including a croissant sandwich with ham, cheese and egg.

While you and I may be enjoying a wider selection of breakfast and lunch offerings, the competitive landscape is only getting tougher for McDonald’s. With wages under pressure and a rising costs, perhaps the Golden Arches will need to find a new nickname.

I'm the co-founder and chief investment officer of Tematica Research and the editor of Tematica Investing, a subscription newsletter that utilizes a thematic approach to investing that that capitalizes on my near 20 years in the investment industry. In that time, I've been ...